The Visible Policy
Page 3, Let the Future Begin!

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Base Policy Illustration

Let us see what New York Life predicted for my policy.  The insurance Cash Value Curve is straight from NYL, with no modifications made by me.
Base Policy Illustration, age 42-79
Let us examine this graph line by line, beginning with the topmost one.  If you wish to reference the graph while reading the description, click it.  A smaller version will appear in a different window, one that stays in front.  Don't worry!  It will go away when you click it closed.

Fred the Actuary predicts that I am going to die around age 79.  I hope he is wrong, and I let the graph continue to age 89 just to spite him.

Has a "buy term and invest the difference" strategy been shown to be the best to follow?  When minimal money goes into the whole life insurance policy, it would seem so.


Front-Loaded Illustration

Now let us make things more interesting.  Modify NYL's illustration with my front-loading of Paid Up Additions ("PUA", aka "OPP" for "Option to Purchase Paid-Up Additions").
Base WL w/OPP also w/XP, age 42-79
This chart is crowded during the early years.  One reason for this is that it displays both a front-loaded and a back-loaded case for the same out-of-pocket dollars.  I had done the front-loaded (OPP) case first, but then I began to wonder what would happen if someone simply kept paying the annual premiums until such time as no sell-backs of PUA would be necessary.  This resulted in the Extra Payment (XP) lines.

If this model is correct, my hypothesis is verified.
Front-loading cash into the back-loaded earning design of my policy results in significant gain improvement.  Here is a tabular summary of the modeled strategies:

Model Summary, Age 42 thru 79
Strategy Invested -> Value Absolute Gain Inflation Gain
T+I min $21,168 ->  $92,671 338% $55,411    67%
Base CV $21,168 ->  $86,772 310% $55,411    57%
T+I max $33,000 -> $174,070 427% $84,338   106%
CV w/XP $33,000 -> $133,349 304% $79,078    69%
CV w/OPP $33,000 -> $190,159 476% $84,338   125%

(There is no T+I model mate for the XP case.  Comparing it with the Base Policy case is instructive, however.  Base "beats" XP in absolute gain, but loses to XP in both reality and inflation gain.  That is because by year 12, the Base Policy case has "invested" all of its money, and every year after that, the entirety is subject to inflation.  However, it is not until policy year 19 that all of the XP investment has been made.  Thus the total effect of inflation is less than the Base case.)

Why does the OPP case beat its T+I mate, but the Base Policy case lose to its mate?  The return on the Base Policy case is damaged during nine years of PUA sell-backs.  This saves out of pocket expenses, but hinders the "investment" properties of the policy.  On the other hand, the OPP case intentionally overfunds the policy.  Not only does nothing need to be sold back, but gain begins from the very first policy year.

There is no magic, or "cheating", or getting money for nothing.  Given the choice to wait years for gains to begin to accrue or begin getting a return right away, it just made sense not to wait.  Ricky says:

100% loss is not good.
-- Ricky's Little Book of Financial Truisms

By listening to him this time and not accepting the extremely high losses the first two years, I seem to be on track to something better.  Thanks, Ricky!


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Accesses since 31 May 2001
last modified 22 November 2010
2001 - 2010 by Rich Franzen
New model incorporated August 2002.

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No content within The Visible Policy has been approved, authorized, or verified by New York Life or any of its representatives.  I have attempted to fairly and accurately portray the policy, but there are likely to be mistakes.  Over time, I shall endeavor to correct any misinformation found herein.
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